Is Market Sentiment Really Forecasting a Correction?

Frank Hogelucht:

Most recently the current investor sentiment got a lot of press around the blogosphere, regularly picking out the rapid increases in bullish sentiment and it’s most probably negative (contrary) implications for the market’s short- and intermediate term performance.

For example: For the week ending 12/23/2010, the American Association of Individual Investors (AAII) sentiment survey was reported at 63.3% bulls and 16.4% bears (bulls significantly above the long-term average of 39%, and bears significantly below the long-term average of 30%, and the highest reading for the bulls since August 19, 2005), (courtesy of) Investor Intelligence US Advisors Sentiment bulls (data at 58.8% and bears at 20.6%, and finally the Market Vane Bullish Consensus (tracking the buy and sell recommendations of leading market advisers and commodity trading advisers) at 60%, the highest reading since November 9, 2007.

So, what does this mean?

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